A-B InBev in talks with regulators over Modelo deal approval
Looks like AB-InBev were highly optimistic when they announced in June 2012 they expected their Modelo deal to close in the first quarter of 2013. That was provided the lawyers at the U.S. Justice Department did not drag their feet. But seven months later, the anti-trust regulators still seem to be in no rush to issue their verdict.
According to various media sources, the Justice Department is seeking "major concessions" before approving the USD 20 billion deal.
The Justice Department is worried that, when AB-InBev fully own Modelo, they could control about 52 percent of the U.S. beer market and be in a position to dictate beer prices.
There have been so many rumours and statements from “credible sources close to the Justice Department” that it is difficult to make a realistic assessment of what the regulators’ demand will be, and which concessions AB-InBev are willing to make to consummate the deal.
In a clever move to appease the anti-monopoly watchdogs in the U.S., AB-InBev already in June 2012 agreed to sell Modelo’s 50 percent stake in the U.S. importer Crown to wine company Constellation, which has been Modelo’s U.S. partner for years.
From what we at BRAUWELT International hear, the Constellation contract with Modelo includes predetermined annual price increases – as Constellation has stated – and this was negotiated so that Modelo couldn’t just raise prices at will and have Constellation as hostage to these price damaging pressures. It seems – again, if the various news outlets have any credibility – that the pricing mechanism will have to be more strictly adjusted for the Justice Department to be satisfied.
But this is not all. Another report by “well-informed sources” said that AB-InBev might have to sell "production assets" such as breweries to win approval. This, in fact, would be a mean blow to AB-InBev.
As far as the production of the beer by a third party in Mexico is concerned – who could that be? Heineken-owned FEMSA? Or another party buying Modelo’s plant(s), such as Constellation? – this would reduce AB-InBev’s production efficiencies in a very BIG way, effectively making their acquisition scenarios obsolete.
However, if it really comes to that and we are not ruling anything out, AB-InBev would be well-advised to seek a third party buyer for the plant(s) in Mexico that will brew Modelo beers only and only for the U.S., rather than give FEMSA a HUGE profit centre from which FEMSA could battle Modelo/AB-InBev in Mexico and AB-InBev in the rest of the world.
On another rumour that AB-InBev was planning to eventually brew Corona themselves in the U.S.: that is out of the question. The deal with Constellation precludes this.
Seems like patience is the word.
